What is Invoice Discounting? Meaning, Process, and Benefits Explained

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 What is Invoice Discounting?

Invoice discounting is a short-term borrowing tool that allows businesses to unlock cash tied up in unpaid invoices. Instead of waiting 30, 60, or even 90 days for a customer to pay, a business can get an advance (usually 80–90%) from a lender or platform based on the invoice value.
How Invoice Discounting Works:

  1. A company raises an invoice for goods/services provided to a client.

  2. The business submits this invoice to an invoice discounting platform or lender.

  3. The platform immediately provides a percentage (say 85%) of the invoice value.

  4. Once the client pays, the platform deducts its fees and returns the remaining balance.

Example:
If a business raises a ₹1,00,000 invoice, it might receive ₹85,000 instantly. After the client pays, the remaining ₹15,000 is settled (minus the platform’s fee).
Benefits of Invoice Discounting:

  • Fast access to working capital

  • No need for physical collateral

  • Keeps customer relationships private (confidential)

  • Ideal for MSMEs with long credit cycles

  • Doesn’t dilute business ownership

Invoice Discounting vs. Factoring

Feature    Invoice DiscountingFactoring
Confidential?        Yes        No (client is informed)
Collection of payment        By the business        By the factor (lender)
Popular with        MSMEs, large companies        Exporters, SMEs

Who Can Use Invoice Discounting?

  • MSMEs and startups with steady B2B clients

  • Businesses with long payment cycles

  • Companies needing cash flow for operations or expansion

Risks and Considerations:

  • Risk of client payment delays

  • May become habit-forming if overused

  • Works best with reliable and creditworthy customers

FAQs about Invoice Discounting

Q: Is invoice discounting a loan?
A: Not exactly. It's an advance against money you're already owed from customers.

Q: Will my client know about it?
A: No. Unlike factoring, invoice discounting is confidential.

Q: Is invoice discounting legal in India?
A: Yes. It’s regulated and platforms like TReDS are approved by the RBI.

Q: Are there invoice discounting platforms in India?
A: Yes. Some popular ones include KredX, M1xchange, Invoicemart, and RXIL.

Conclusion:

Invoice discounting is a smart way for businesses to manage cash flow without waiting endlessly for client payments. It’s especially useful for MSMEs and startups working with large companies that offer long credit periods.